The recent changes to the rules for self-managed super funds (SMSF) borrowing to buy real property has significantly changed the landscape and restricted opportunities. Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026 rang in these changes.
Residential Property Is Out
Now, Limited Recourse Borrowing Arrangements (LRBA) are no longer permissible for residential property. Nevertheless, a cashed up SMSF that does not need to borrow may still acquire residential property.
Business Real Property
However, opportunities still exist. If a property qualifies as “business real property” as defined in S66 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), then it will be permissible to use a LRBA to buy the property.
What Is “Business Real Property” Within the Meaning of the Act?
Whether the “wholly and exclusively” test for a property is satisfied depends on its actual use and the particular facts and circumstances. Great care needs to be exercised if the property is “mixed use”-a combination of commercial /business and residential. For instance, a commercial property with residential attached warrants careful consideration. It may not be strictly prohibited however if a non-business use is merely incidental. An example of this may well be a caretaker’s flat or unit attached to commercial premises.
Advantages of Business Owners Buying Own Premises in a SMSF
It can be a smart and sound long term strategy for retirement and business succession planning for a business owner to acquire qualifying business premises through an SMSF and rent it through their operating business. By this structure, the SMSF will have the benefit of rental being paid to it (at a commercial rate) and be taxed at a concessional rate and the business has certainty and flexibility of ownership in the SMSF as a Lessor.
As a business succession and estate planning strategy, sale of the business and property together with the lease in place in retirement has significant tax advantages. Using a SMSF to acquire property has long been a sound strategic wealth creation plan for many ordinary Australians to make provision for their retirement. Now-the restrictions make it more complicated, but good avenues still exist and especially for business owners who might currently rent.
Lending to a SMSF
Lending to a SMSF is more complicated than a simple loan. In most cases, a bare property trust needs to be first established in order to enter into a contract. Failure to do so can result in a need to rescind the contract and enter into a new one with the right entity.
The rules for lending to a SMSF are also different to “normal” business lending and LVR’s may be significantly higher (80% is not uncommon). There are now only a few lending institutions that will lend to a SMSF and care needs to be taken to ensure the lender selected is aware of the new rules and any contractual time limits for the purchase of a property. There are specialist finance brokers who work in this space and we recommend that these be sought out.
Care and Advice
The SIS Act is complicated and a failure to comply with the rules can lead to costly and potentially catastrophic consequences for the fund, members retirement plans and the trustees personally.
We recommend that any SMSF contemplating borrowing to acquire property consult with their legal and accounting advisers to ensure the proposed acquisition meets all of the statutory rules and is consistent with the financial strategy of the fund.
Need Guidance on SMSF Property Transactions?
Contact Michael Sing at Rostron Carlyle Lawyers for advice on structuring SMSF property acquisitions, LRBAs and commercial leases. Our team works alongside trusted accounting, financial advisory and lending specialists across Brisbane to ensure your transaction proceeds smoothly.
Disclaimer: The information contained in this article is general in nature and does not constitute legal, financial, taxation, or investment advice. Readers should obtain formal, independent legal and financial advice specific to their circumstances before entering into any transaction or borrowing arrangement involving a self-managed super fund.
